Economic Perspectives 21- Anti-competitive protectionism

Since the exports of every nation are other nations’ imports, why does the myth persist that exports are somehow “better” than imports? But absurdity has never been a barrier to political argument, so we should not be surprised.

I have already written on the subject of trade balances, and the obvious fact that it is impossible for every trading nation to have a surplus of exports over imports at the conclusion of every trading period, since (assuming their respective statistical measures are mutually compatible, and allowing for timing differences in settlement terms) every trade surplus must carry its equal but opposite counterpart somewhere within the cumulative trading balances of other nations.

“the misguided notion that exports are better than imports”

It is from the misguided notion that exports are better than imports that the anti-competition practice of protectionism emerges, bringing with it all the usual jingoistic flag-waving: “British jobs for British workers”, “protecting ourindustries”, and the rest.

The trouble with agitators for the protection of domestic industries is that they view trade economics through an upside-down prism: it is not the function of consumers to serve producers. It is the function of consumers to consume, and the function of producers to serve their consumption demands. National boundaries play no part.

Despite the evidence of economic history, the myth that protectionism is an effective tool for creating, and preserving, employment persists. The fallacy of this xenophobic mindset could hardly have been more succinctly expressed than in the writings of the 19th century economist Henry George on the virtues of free trade. To paraphrase: You wouldn’t fill your harbour with rocks to keep out the goods that your citizens want to buy, would you? Well, that’s exactly what you are doing when you slap tariffs on imports!

PEOPLE (NOT NATIONS) TRADE

It is essential to hold on to these simple truths when sifting through the array of disingenuous nonsense spouted on both sides of the Brexit debate. On the vexed issue of “trade deals”, that is currently proving to be so divisive, Sir James Dyson reminds us that neither nations nor government ministers, for all their bloated posturing, actually trade. Businesses, run by people, trade. He has entered a plea for focusing on the world’s fastest-growing markets – even if it means a break from the EU’s “single market” which, he maintains, is a misnomer anyway, being in reality a highly complex, fractured market with a host of different languages, laws and regulations.

As it happens, the UK doesn’t need to be inside the single market in order to trade with countries in the EU. Last year the USA, as an outsider, conducted a quarter of a trillion dollars of EU trade without having to accept the jurisdiction of the European Court of Justice, freedom of movement, or the need to pay billions in annual subventions.

The descent of such a key debate into the murky lingo of political aphorism is a retrograde development, with the actual terms of the referendum now subsumed into connotations of “soft” and “hard”, whose intended meanings have become increasingly indistinct. All I can deduce is that the “soft” option favoured by even the most thoughtful, but recalcitrant, “remainers”, amounts to a de facto renunciation of the referendum result, since it would leave Britain liable for multi-billion pound annual payments and an obligation to maintain cross-border “freedom of movement”.

In short, the UK would be bound by huge restrictions on economic and political freedom without the ability to influence the rules that impose it. Forget “hard” or “soft” – “clean” is surely the preferred option.

2 – PROTECTING JOBS

Twinned with the fallacy of protective tariffs, and their counterpart, subsidies, is the parallel notion of protecting jobs – and France, with its international reputation as a difficult place to do business, is an apt arena for fashioning change.

Its young president, Emanuel Macron, and his minister Benjamin Griveaux, are determined to make it easier, and cheaper, to “facilitate greater workplace mobility” – or, simply put, to sack workers. This sounds terrible, of course, for job security in general, but it certainly enhances the willingness of companies to hire staff in the first place – especially companies in the cutting-edge electronic and robotic industries in which volatile job specifications are known to be in constant flux.

Considering that the main achievement of France’s historic tolerance of its institutionally belligerent unions is an unemployment rate of 10 per cent, it is an apt proving ground for an overdue dose of labour reform.

it is an apt proving ground for an overdue dose of labour reform

3 – REGULATORY MADNESS OF THE COMMON AGRICULTURAL POLICY

Government meddling in matters best left to entrepreneurs, industrialists, traders and farmers always results in unprincipled, politically dominated regulation that generates more misery and conflict than that which it seeks to remedy. The cyclical process of blind correction keeps on turning, accumulating more regulatory detritus, destined ultimately to collapse under its own weight.

How else could a monster such as the EU’s Common Agricultural Policy (CAP) have been conceived?

The CAP is a bureaucratic nightmare that has inflicted untold hardship on EU citizens and benefited no one beyond the isolated circle of morons that contrived it in the first place.

Despite its founding aim of supporting EU farmers by imposing a maze of cross-border subsidy regulations, its unintended consequences, notably the unremitting inflation of consumer prices of foodstuffs, have taken it well beyond the point of no return and rendered it fit only for the scrapheap.

At root it is a system of subsidies paid to EU farmers, intended to guarantee minimum levels of production so that no one goes hungry! And surprise, surprise: its lavish subsidies generate monumental overproduction, costing half the EU’s annual budget of £60 billion!

The EU subsidies cause widespread market distortion when it sells its overproduction cheaply to third world countries, and its intensive farming practices are environmentally damaging. The whole thing is so badly unbalanced that 70 percent of its massive budget goes to only 20 percent of farms.

There have been endless attempts to reform the CAP, but each reform generates its own trail of malign consequences. France, the CAP’s largest beneficiary, is in any case fundamentally opposed to any reform that would reduce the undeserving subsidies lavished on its farmers.

The whole thing is a nightmarish charade, and its only useful attribute is that it demonstrates, in classic style, that all government expenditure is, by its very nature, utterly unsusceptible to any meaningful economic calculation.